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Myer share price slumps as first-half profits dive

The Myer Holdings Ltd (ASX: MYR) share price is trading near an all-time low at 34 cents today after reporting a slump in first-half profits and sales.

Statutory net profit after tax (NPAT) fell nearly 30% as the department store battled the exit of key brands and a subdued operating environment. 

Myer’s 1H20 results

Myer reported a 3.8% drop in total sales which fell to $1,607.9 million for the half. Lower sales were attributed to the exit of Apple and Country Road brands, a focus on profitability, and a disappointing performance in Womenswear. There was strong growth in online sales which increased 25.2% to $168.2 million, representing 10.5% of total sales. This was not enough, however, to offset in-store declines. 

The retailer is two years into a five-year turnaround plan which aims to consolidate store offerings and improve profitability. Costs of implementing the plan, including the closure of the clearance floor concept and support office simplification, came to $13.4 million post tax during the half. 

In more positive news, operating gross profit margin increased by 62 basis points to 39.14%, somewhat helping to offset the reduction in sales. Cost of doing business declined 2.6% to $516.1 million, reflecting simplification of the business including an enhanced in-store staffing model, reduced store occupancy, and a reduction in management and administration costs. 

Earnings before interest, tax, depreciation and amortisation (EBITDA) declined 0.4% to $113.1 million. Depreciation costs for the half reduced 2.5% to $48.6 million. Interest was up 6.4% to $5.5 million, reflecting a full period under the November 2018 refinancing arrangements, partly offset by lower average net debt during the period. 

Meanwhile, statutory NPAT fell by 26.9% to $28.1 million (pre-AASB 116) and the dividend remains suspended. While Myer reports that key trading events such as Black Friday were generally well executed, conditions were subdued, particularly in the critical second quarter. A decline in footfall impacted on in-store trade. 

Outlook

Myer reports that it still has considerable work to do to execute its turnaround plan while operating in a tough trading environment. Numerous opportunities remain to improve productivity and reduce costs, particularly in areas of store occupancy, factory to customer, and fulfillment for both stores and online. 

The supply chain impact of coronavirus is being managed by teams in Hong Kong and Shanghai, with the focus on mitigating the impacts of delays on the planned delivery of merchandise.

Myer predicts the challenging macro environment will continue in the second half and advises the ongoing impact of coronavirus on store traffic remains uncertain. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Kate O'Brien